Total signs first ever IPC deal for South Pars, South Azadegan to follow

15 November 2016
08 November 2016, Week 44, Issue 600

France’s Total, has now signed the first deal under the terms of Iran’s new integrated petroleum contract (IPC) model to develop Phase 11 of the supergiant South Pars gas field.

France’s Total, has now signed the first deal under the terms of Iran’s new integrated petroleum contract (IPC) model to develop Phase 11 of the supergiant South Pars gas field.

During an interview on November 8, Mehrdad Emadi, senior economist for risk analysis and energy derivatives markets consultancy, Betamatrix told NewsBase that Total will have a 50.1% stake in the development, with China National Petroleum Corp. (CNPC) taking 30%, and Iran’s Petropars, a subsidiary of the National Iranian Oil Co. (NIOC), holding the remaining 19.9%.

The version of the IPC being used is the originally-envisioned Western-friendly model, which will now be used for a range of similarly high-profile field developments, despite previous opposition from hardliners who supported a version extremely similar to the previous unpopular ‘Buyback’ structure, Emadi told NewsBase.

The 57 mcm per day target for Phase 11 is a cornerstone to the development of the South Pars non-associated gas field. Iran’s 3,700-square km sector of the 9,700-square km basin shared with Qatar accounts for around 40% of the country’s estimated 33.8 trillion cubic metres of natural gas reserves, and around 60% of its gas production.

South Pars itself remains the foundation upon which Iran intends to increase its natural gas production up to 1 bcm per day by the end of 2018.

South Azadegan

In addition, Total remains the front-runner for the imminent allocation of another IPC award for the massive South Azadegan oil and gas field, which is one half of the supergiant Azadegan field that remains Iran’s biggest oil find since the late 1960s. The field has estimated reserves of around 42 billion barrels of oil, of which around 7 billion barrels are deemed recoverable.

It was previously run under a buyback contract signed in 2009 by CNPC, along with North Azadegan, with the Chinese having originally paid 90% of the project’s initial US$2.5 billion costs in return for which CNPC would receive payment from oil production over a sufficient number of years to cover its investment.

The original plans were to develop the field in two phases, with the first targeting an output of 320,000 barrels per day of oil and 198,000 cubic feet per day of gas, with the second phase targeting production of 600,000 bpd of oil and 404,000 cubic feet per day of gas.

However, CNPC’s targets were lower in the first instance, at 150,000 bpd in the first phase and 110,000 bpd in the second, up from the 50,000 bpd being produced at the time, a figure that had remained unchanged from 2009.

By the end of 2014, though, even these targets were nowhere near being achieved, with CNPC having drilled only 7 of the 185 wells it had planned at the field, whereupon NIOC cancelled the contract, and placed the entire responsibility for all of the South (and North) field’s 100 wells’ drilling in the hands of domestic firms.

Each of these – the National Iranian Drilling Co. (NIDC), and the National Iranian South Oil Co. (NISOC) – were given an initial 40 well drilling target, with another 20 wells target given to selected private local firms. NewsBase understands from oil and gas industry sources in Tehran that the original, higher, targets will be set for the French firm.

Oil layer and beyond

As also exclusively flagged by NewsBase earlier this month, Royal Dutch Shell will formally announce within the next three weeks that it has signed an IPC, under the same Western-friendly terms, for the development of the South Pars oil layer plus one of the major phases of the South Pars non-associated gas field.

The first phase of development of the South Pars oil layer is expected to produce 20,000-35,000 bpd, with Iran’s Oil Ministry estimating that the layer has around 7 billion barrels of oil reserves in total.

Shell will also be announced, according to the sources in Tehran, within the same timeframe, as the winner of the IPC contract for the Soroush and Norouz fields in Iran’s continental shelf, which at the time sanctions were ramped up in 2012 had reached 88% completion.

The originally envisioned US$799 million project had initially seen Shell as the key developer before sanctions really hit, with an initial output target of 60,000 bpd, and 190,000 bpd in the second phase.

The output target now in the first phase will remain the same, with an increase in the second phase upped to 205,000 bpd, according to the Tehran-based sources.

In a similar vein, a slew of new contracts – also under the Western-friendly version of the IPC – will be announced in the next few weeks, as Iran looks to hit its pre-sanctions output and export levels in both oil and gas.

The most immediate of these, NewsBase understands from sources close to the Iranian Petroleum Ministry, will be the return to the Anaran exploration block in the west of the country – including the Azar, Changuleh West, Dehloran, and Musian fields – of Russian oil giant, LUKoil, and Norway’s Statoil, and long-term Iranian ally, Italy’s Eni, being awarded the development contract for the offshore Balal oilfield.

Edited by

Ian Simm


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